EDITOR: An editorial published on November 10 argues that inflation is the result of “government policies [that] added cash into the economy, without a corresponding increase in goods and services.” That statement leads to some interesting questions: who decides whether the amount of goods and services increases or not? And who decides at what prices those goods will be sold? As U.S. Senator Bob Casey’s Greedflation report indicates, the answer is simple: corporations do. Prices don’t just happen; they are set by firms. While in normal times companies try to keep their prices relatively stable not to lose consumer goodwill, the pandemic gave them the needed cover to raise prices and avoid blame for it.
Even if one were to agree with the editorial that fiscal policy helped maintain and increase consumer spending by providing much-needed relief to American families, it does not absolve corporations of the blame for inflation. They siphoned the government relief out of consumer pockets by charging higher prices. Not surprisingly corporate profits grew by about 65% from 2020 to 2023 (Q2) – much faster than their costs, including wages.
Many corporations openly admit that rather than produce more, even when they could, they chose the path of selling fewer products at higher prices. They tell their shareholders the pricing environment has never been better for them. The CEO of Coca-Cola bragged that the company had “earned the right” to charge higher prices, while the CEO of Colgate-Palmolive has bragged about being “very good at…pricing”. Charging “what the market will bear” is what corporations do, and charge they did.
The editorial, while calling for nuance, also overlooks the ways in which Congress has tried to address the complex supply chain issues that contributed to inflation. The CHIPS and Science Act aims to return semiconductor production to the U.S. to prevent future shortages (which contributed significantly to higher car prices). Similarly, the Inflation Reduction Act promises to accelerate our transition to cheaper renewable energy. As Senator Casey’s report suggests, targeted policies such as these are the correct approach to tackling inflation.
Yeva Nersisyan
Associate Professor and Chair
Department of Economics
Franklin and Marshall College
Lancaster, PA
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